Roque v IAC G.R. No.

L-66935

November 11, 1985

This petition for certiorari asks for the review of the decision of the Intermediate
Appellate Court which absolved the respondent insurance company from liability on
the grounds that the vessel carrying the insured cargo was unseaworthy and the
loss of said cargo was caused not by the perils of the sea but by the perils of the
ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a
common carrier, entered into a contract with the petitioners whereby the former
would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs
from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured
the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of
Manila, but the shipment never reached its destination because Mable 10 sank with
the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.
As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that
it developed a leak. The appellate court further found that one of the hatches was
left open causing water to enter the barge and because the barge was not provided
with the necessary cover or tarpaulin, the ordinary splash of sea waves brought
more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment
of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits
but the latter ignored the demand. Another letter was sent to respondent Pioneer
claiming the full amount of P100,000.00 under the insurance policy but respondent
refused to pay on the ground that its hability depended upon the "Total loss by Total
Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599 against
Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion
of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer
Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in

addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed,
for lack of merit, but as to its cross-claim against its co-defendant Manila Bay
Lighterage Corporation, the latter is ordered to reimburse the former for whatever
amount it may pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed
for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's
fees in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent
(6%) from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did
not appeal. According to the petitioners, the transportation company is no longer
doing business and is without funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it
had salvaged part of the logs. The court ordered them to be sold to the highest
bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and
absolved Pioneer from liability after finding that there was a breach of implied
warranty of seaworthiness on the part of the petitioners and that the loss of the
insured cargo was caused by the "perils of the ship" and not by the "perils of the
sea". It ruled that the loss is not covered by the marine insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners
filed this petition with the following assignments of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF
MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE
CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE
CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS
OF THE SEA."

III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO
PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL
COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty
of seaworthiness provided for in the Insurance Code refers only to the responsibility
of the shipowner who must see to it that his ship is reasonably fit to make in safety
the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship,
has nothing to do with its seaworthiness. They argue that a cargo owner has no
control over the structure of the ship, its cables, anchors, fuel and provisions, the
manner of loading his cargo and the cargo of other shippers, and the hiring of a
sufficient number of competent officers and seamen. The petitioners' arguments
have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did
not bother to appeal the questioned decision. However, the petitioners state that
Manila Bay has ceased operating as a firm and nothing may be recovered from it.
They are, therefore, trying to recover their losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term
"cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of
Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of

insurance upon anything which is the subject of marine insurance, a warranty is

implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured
is immaterial in ordinary marine insurance and may not be used by him as a
defense in order to recover on the marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S.
406):
There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. The shipper
of cargo may have no control over the vessel but he has full control in the choice of
the common carrier that will transport his goods. Or the cargo owner may enter into
a contract of insurance which specifically provides that the insurer answers not only
for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this
case. As stated by the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinarynature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage
(as in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not
be reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec.

384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L.
ed. 787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of
the cargo was caused by the perils of the sea, not by the perils of the ship because
as found by the trial court, the barge was turned loose from the tugboat east of
Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also
maintain that barratry, against which the cargo was also insured, existed when the
personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the
stranding and foundering of Mable 10 was due to improper loading of the logs as
well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was
occasioned by the perils of the sea characterized by the "storm and waves" which
buffeted the vessel, the records show that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves,
a condition which is natural and normal in the open sea. The evidence shows that
the sinking of Mable 10 was due to improper loading of the logs on one side so that
the barge was tilting on one side and for that it did not navigate on even keel; that
it was no longer seaworthy that was why it developed leak; that the personnel of
the tugboat and the barge committed a mistake when it turned loose the barge
from the tugboat east of Cabuli point where it was buffeted by storm and waves,
while the tugboat proceeded to west of Cabuli point where it was protected by the
mountain side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of
defendant carrier developed a leak which allowed water to come in and that one of
the hatches of said barge was negligently left open by the person in charge thereof
causing more water to come in and that "the loss of said plaintiffs' cargo was due to
the fault, negligence, and/or lack of skill of defendant carrier and/or defendant
carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship
rather than the perils of the sea. The facts clearly negate the petitioners' claim
under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins.
Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the

ordinary wear and tear of the ship, or from the negligent failure of the ship's owner
to provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened
during the voyage, but to the failure of the ship's owner properly to repair a defect
of the existence of which he was apprised. The loss was therefore more analogous
to that which directly results from simple unseaworthiness than to that which result
from the perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts
the perils of the sea from his engagement under the bill of lading, while this is the
very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the
shipowner for redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing
negligence on the part of the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part
of master or crew in pursuance of some unlawful or fraudulent purpose without the
consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No
honest error of judgment or mere negligence, unless criminally gross, can be
barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel's crew. There was only simple negligence or lack of
skill. Hence, the second assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount
of P8,000.00 representing the amount of the salvaged logs should have been

awarded to them. However, this should be deducted from the amounts which have
been adjudicated against Manila Bay Lighterage Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the
amount of P8,000.00 representing the value of the salvaged logs which was ordered
to be deposited in the Manila Banking Corporation in the name of Civil Case No.
86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged
against Manila Bay Lighterage Corporation in the decision of the trial court is
accordingly reduced by the same amount.